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Will NovaGold Take a Buyout Offer?

NEW YORK ( TheStreet ) - Gold prices have rallied more than 20% for the year, which has ignited a flurry of mergers and acquisitions in the gold mining sector. The trend prompted investors to speculate on the next takeover target and they have set their sights on NovaGold (NG).

NovaGold is a small Canadian miner with two of the largest gold and copper deposits in the world, Donlin Creek and Galore Creek, where it partners 50/50 with Barrick Gold (ABX - Get Report) and Teck Resources (TCK - Get Report), respectively. Production is expected in 2015 at the earliest.

NovaGold's Biggest Risk

In 2011, NovaGold is expected to complete a pre-feasibility study for Galore as well as a revised feasibility study for Donlin. The company's net interest in the two projects is a staggering 30 million ounces of gold, 157 million ounces of silver and 9.1 billion pounds of copper.

Investors are wondering if this company, with big resources like these, can snag a big premium takeout offer akin to the ones Red Back and Andean Resources received from Kinross Gold (KGC - Get Report) and Goldcorp (GG - Get Report), respectively.

The more gold a company produces the more gold it has to find to replenish supply. According to the World Gold Council gold demand trend report, mine supply grew 3% in the third quarter from a year earlier while gold demand rose 12%. Although the difference between supply and demand was largely made up for by an increasing recycled gold supply, as prices sustain high f-digit levels the pressure is on to find new deposits.

As previously reported, shares of NovaGold have surged since the end of August as investors followed George Soros and J John Paulson into the stock in hopes that large gold companies would also find this company attractive.

I recently sat down with CEO Rick Van Nieuwenhuyse to get his long-term exit strategy for NovaGold.

What do you say to the widely accepted thesis among NovaGold investors that it is going to be a takeover target?

Van Nieuwenhuyse: Well, certainly with our two big core assets, Donlin and Galore, and the total net ounces attributable to the company, and the fact that you've got the byproduct copper and silver, basically we are close to a million ounces of production between the two projects, our share between the two projects. You've got a very, very low cost gold producer with a silver and gold byproduct credit so naturally that would fit nicely into any major companies portfolio. We're obviously aware that that's a possibility.
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ABX $12.25 2.30%
GG $15.65 4.30%
KGC $2.99 3.10%
NG $4.82 2.30%
NEM $25.76 2.90%


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